You’re taught in business school that the primary role of a corporation is to make money for your shareholders; former General Motors marketing guru and legend in the industry Bob Lutz would quip back that building a strong product would be the key to a company’s success. Shareholders should be put on the back burner for the sake of focusing on the car.
GM’s biggest shareholder, the U.S. government, apparently doesn’t care about personal profitability; it just wants out of the car business. The automaker has announced that is is buying back 200 million shares of stock for $27.50 per share, or $5.5 billion. And the U.S. government wants to completely wash its hands of the remaining 300 million shares it owns within 15 months.
In 2009, the U.S. government, among other governments around the world, chipped in to help bailout both GM and Chrysler. It was able to sell most of Chrysler off for pennies on the dollar to Fiat and the United Auto Workers’ VEBA retirement fund management organization. GM had a problem in that it was far larger and there were no banks with enough liquid funds to be able to prop up the automaker that had hit a wall in the biggest financial calamity since the Great Depression. Enter: the U.S. government.
GM first purchased $13.5 billion in stock during its initial public offering in November 2010 for $35 per share. Yet, the company has struggled to maintain its stock price. Earlier this year, GM’s stock price dipped as low as $18.72 per share.
Today, with the announcement of the buyback, GM’s shares have jumped more than $2 on the news, and the $27.50 price reflects an 8-percent premium over what the shares closed at yesterday. But with 300 million shares left in its possession, the U.S. Treasury Department would have to sell each of them at $69.72 to make its money back after a $50 billion bailout.
GM CEO Dan Akerson said of the news in a statement that, “This announcement is an important step in bringing closure to the successful auto industry rescue, it further removes the perception of government ownership of GM among customers, and it demonstrates confidence in GM’s progress and our future.”
It’s unlikely that the government will ever be able to get the bailout funds back that were started by President George W. Bush’s Troubled Asset Relief Program and expanded under Barack Obama. But it will be nice to finally end the conversation about politics and start focusing on cars again, such as the 2014 Corvette that we’re obsessed about at the office.
Continued Akerson: “We come to work every day grateful that taxpayers from the US and Canada stepped forward to rescue our industry, and determined to show this extraordinary help was worth it.”